If you have read any finance articles or news that relates to money, you probably have come across being financially literate or financial literacy.
These terms apply to how well you understand your finances and how educated you are in everyday financial decisions.
Unfortunately, financial education results in America are really not that great.
“Only 28% of Americans are considered “financially healthy,” according to a CFSI survey of more than 5,000 Americans.
While not a large sample size, there are tons of other statistics about low savings, high debt, etc. out there.Yet, you don’t have to be in those categories.
Below, we’ll explore everything about financial literacy and how you can become financially literate on your own.
What is Basic Financial Literacy?
Being financially literate or “having financial literacy” is not difficult to define. These terms simply mean you have an understanding of basic financial concepts.
Understanding financial basics thus allow you and others to make smarter money choices and are able to be self-sufficient in financial decisions.
The best way to define financial literacy is:
You are able to understand financial issues everybody deals with like saving money, paying bills, debt management, investing, etc.
Knowing and memorizing some finance terms is great, but it’s applying that terminology effectively that create positive financial stability in your life.
Financial Literacy Statistics
Now that we have a complete definition of financial literacy, it makes sense to put some stats behind it. There are tons of personal finance stats, but I’m going to keep it pretty simple here.
Below are a few that I found interesting as it relates to financial literacy.
- Two-thirds of American adults can’t pass a basic financial literacy test. (Fortune)
- 44% of Americans don’t have enough cash to cover a $400 emergency (Forbes)
- The majority of US adults (61%) have had credit card debt in the past 12 months and nearly two in five (38%) carry such debt from month-to-month. (NFCC)
- Nearly four out of every five U.S. workers live paycheck to paycheck (CareerBuilder)
- Nearly three in 10 adults (29%) are now saving more compared to one year ago, particularly Millennials (18-34) and young Gen Xers (35-44). (NFCC)
- 56% of American adults have less than $10,000 saved for retirement when you combine the 33% who have nothing saved with the 23% who have a small amount saved. (TIME)
What Does It Mean To Be Financially Literate?
Being financially literate means you have an understanding in a few core areas:
Budgeting and setting financial goals
Paying bills and saving money
Basics of loans (personal, debt, mortgages, etc)
Credit cards and credit scores
How investing works, 401ks, the stock market, etc.
Financial literacy is not something you will magically know either.
The majority of schools are not teaching personal finances to students. Parents and family may be misinformed or lack a deeper knowledge that children cannot learn from.
What is one to do?
Unless you take some economics courses within your education path, becoming financially literate is on YOU.
Yes, you can blame the education system, your parents, your environment, etc.
While they can all have some affect, this is still something you ultimately control. You alone have the ability to change your lack of financial knowledge.
Read the above over again because I think it is important.
Harsh truth? Maybe. But no one is truly going to hold your hand and show you the way.
Even if someone in your life does arm you with some money and investing insights, it’s on you as to what you do with that information.
The good thing is, many school districts are starting to add classes to the curriculum. But, it has a long way to go until it is universally adopted.
So what can you personally do? In the next section, I’ll cover some ways you can achieve financial literacy on your own.
How To Achieve Financial literacy On Your Own
Again, since you might not have had any classes or had much insight, it’s up to you to become financially literate.
Luckily, with the digital age and abundant amount of information, you can learn finances relatively fast.
Everyone is at a different learning curve and pending your life’s schedule, it may take you some time. So I recommend you go at your own learning pace.
That being said, here are some simple ways to help you become financially literate.
1. Hit the Books
In order to get started, books will become key in your quest to be financially literate. It was crucial for my education, especially coming from no background in finance or investing.
Dedicate a minimum of 1-2 hours each week to reading books about money management, investing, finances, etc. I created a list here of some of my favorites that were important to my financial education.
2. Read Magazines and Online Publishers
I find books to be the most important, but magazines and online publications can be equally important to your financial education.
Think publications like Kiplinger, Financial Times, Fortune, and there are tons of personal finance bloggers (like me).
3. Use Financial Management Tools
Managing your finances and money doesn’t have to be hard or boring. Thanks to tech and the internet, there is an abundance of tools to help you be more proficient.
But besides helping you organize and visualize your financial life, you end up learning a lot too.Many of these tools have great learning centers or blogs.
4. Listen to Money Podcasts
Being able to dedicate time to reading can be challenging. You may have a busy work and family life, which is exactly why podcasts are perfect.
Podcasting is huge!
And there are many great ones you can listen to on your way to or from work, doing chores, or even at work (if it doesn’t disrupt your productivity).
There are too many good ones to list and all vary in length from 10 minutes to almost an hour of strong info. This is free education you can listen to! Here is a great list of some of the best finance podcasts.
5. Take a Financial Literacy Course
So besides books and online publications, you can totally get involved in a financial literacy class or course. Whether that is at an online school, college course, adult education center, etc.
This is if you feel you want to go a step further or need the structure to learn. Many are paid, but there are some free courses online that can be a great educator.
6. Get Your Math On
I’ll be honest, I’m not a big math fan. Yet for you to be financially literate, you’ll need to bust out some most basic math skills.
Brush up on some math or look into some basic formulas that can help you organize your money, savings percentages, etc.
I know spreadsheets can make this easier or software will do the math for you. It’s fine if you do, but know how the math works, why it’s that number, and if you needed to — you could calculate that yourself.
7. Read the Government Resources
I know, some of you may have a slight distrust of the government, yadda yadda, tin foil hats, big brother is listening, etc.
Okay, all that aside the government does have some useful resources to try and get you to learn more about personal finance. More information is on the Treasury website with other resource links.
8. Break Your Consumer Mentality
A big challenge for many Americans, is we have a consumer mentality. But it’s really unavoidable at first.
We are targeted with ads EVERYWHERE, media promotes lavish lifestyles, social media makes of envious of others’ possessions, etc.
Over your financial literacy journey, you’ll learn to break the consumer mentality and developer an investor mentality.
The Benefits of Financial Literacy
By now, you probably are starting to understand the power of financial literacy. You probably are also piecing together the benefits this will have on your present and future finances.
And you have the tips to get you on the right path.
But if you need some further convincing, here are some of the benefits of becoming financially literate.
You gain control
Instead of letting money control you, now you hold the reins to your personal finances. This empowers you and makes you feel more confident and decisive with your money.
Additionally, your attitude towards finances changes. The way you look and think about money alters for the better.
Eliminating and avoiding debt
Debt is one of the biggest hurdles many younger generations are facing today.
When you have financial education, you start to really understand how debt works, interest rates, and how to avoid debt disasters. It can also help you create a plan to attack any current debt and save yourself thousands of dollars.
Value financial goals
As you gain financial knowledge, you’ll be more inclined to set goals for yourself.
And besides that, you may find yourself excited and more determined to work towards achieving those goals.
If you are interested in learning more, here are some tips for creating financial goals and sticking with them.
Being able to identify fraud
This might not be talked about often, but financial literacy can really impact your knowledge about identity fraud in the finance space.
You can start to catch any red flags with investing, banking, or any other money-making schemes.And, it will ensure you can take your time when making any financial decisions.
Certainly, consult with someone if you need help, but now you can also tell if someone is offering you terrible advice or services that may rip you off. And it enables you to ask the right questions and evaluate your options.
Now that you got a full breakdown, do you want to put your current knowledge to the test? There are some financial literacy tests out there, here is one that might be worth trying.
And don’t worry if your score is not great, use the above tips to help get you started on track. Not only will you know so much more, but your future finances will thank you.